A financial independence journey fueled by passive income

Month: November 2013

Chatter Around the World is a weekly link update of economics, investing, dividends and personal finance articles that have caught my eye. In these weekly updates, I also capture my blog updates and news related to my holdings.

As the year draws to a close, I am starting to keep an eye how my holdings have performed over the year, and more importantly, what the 2014 outlook looks like. The current market conditions seem to suggest that stocks are fair-to-overvalued. But looking at the analyst estimates and the forward earnings guidance could possibly shed some more light on how my holdings are valued for the year forward.

A Forward P/E is the measure of the price-to-earnings (P/E) ratio using forcasted earnings. The Forward P/E could be for the forward 12 months period or for the next full-year fiscal period. Note that these are merely estimates and guidance and are not an accurate measure as it is not reliable data compared to the current earnings data. Nevertheless, my portfolio’s P/E and Forward P/Es are listed below including the current and 5-yr average yields.

Company Name

Ticker

Quote

P/E

Forward

P/E

Current

Yield

5-yr Avg

Yield

Archer Daniels Midland

ADM

$41.60

18.65

12.88

1.83%

2.30%

BCE Inc

BCE

$46.53

16.36

14.81

5.01%

5.10%

Chevron

CVX

$122.78

10.04

10.32

3.26%

3.30%

CHS Inc

CHSCP

$29.57

–

–

6.76%

–

Cineplex

CGX

$42.40

21.75

20.51

3.40%

–

IAMGold Corp

IMG

$4.32

16.74

16.33

6.09%

1.70%

Inter Pipeline Ltd

IPL

$25.52

–

–

5.05%

6.40%

Johnson & Johnson

JNJ

$95.06

21.21

16.29

2.78%

3.30%

Medtronic Inc

MDT

$57.36

15.33

14.06

1.95%

2.20%

Omega Healthcare

OHI

$32.29

23.38

20.85

5.95%

7.20%

Qualcomm

QCOM

$73.65

18.84

13.13

1.90%

1.60%

RioCan REIT

REI.UN

$24.82

8.32

–

5.68%

6.30%

The Bank of Nova Scotia

BNS

$65.42

13.00

12.02

3.79%

4.00%

The Jean Coutu Group

PJC.A

$18.18

9.42

15.14

1.87%

1.90%

The Southern Company

SO

$40.73

22.16

14.69

4.98%

4.70%

Thomson Reuters

TRI

$39.28

37.23

19.70

3.46%

3.50%

Wells Fargo & Co

WFC

$44.31

11.67

11.07

2.71%

2.10%

The difference in the P/E and Forward P/E gives us a clue if the stock is currently under or overvalued as per the earnings estimates. From the lot, only Chevron (CVX) and The Jean Coutu Group (PJC.A) have a Forward P/E less than the current P/E. On the other end of the scale with the largest difference between current P/E and Forward P/E, we have Thomson Reuters (TRI), The Southern Company (SO), Archer Daniels Midland (ADM) and Qualcomm (QCOM). I will be digging deeper into the analyst estimates, forward guidance statements of these four equities to consider adding to my position.

What are your thoughts on Forward P/E? Do you ever consider this metric in your investing decisions?

Energy companies in oil and natural gas sub-sectors provide investors with a great stream of passive income with healthy dividend payout and a fairly decent dividend growth rate. The energy sector is one of the top grossers of revenue across the world. In addition, the energy stocks are currently under-to-fairly valued, which makes them more attractive for value investors in current market conditions to initiate or extend their positions.

Warren Buffet, CEO of Berkshire Hathaway, has recently made big moves in the energy sector – with Suncor Energy (SU) and Exxon Mobil (XOM). Berkshire Hathaway took a $524M position in Suncor Energy (source) and a $3.7B position in Exxon Mobil (source).

My Portfolio

I recently closed my position in Husky Energy (HSE), which had not grown its dividends for years and I decided to write a covered call, which ended up in-the-money and being assigned. Read details about that transaction here. Due to this transaction, my asset allocation in the energy sector has dropped below what I consider ideal and I am now considering investing more in the energy sector by either adding more equity in my positions in Chevron (CVX) and Inter Pipeline Ltd (IPL) or invest in new equities.Stocks I am considering are:

Company Name

Ticker

Quote

P/E

Yield

Payout
Ratio

5-yr
DGR

Chevron

CVX

$124.03

10.15

3.23%

32.7%

9.13%

ConocoPhillips

COP

$74.02

11.01

3.73%

41.1%

8.45%

Royal Dutch Shell

RDS.B

$71.40

9.45

5.04%

47.6%

3.29%

Suncor Energy

SU

$37.96

19.70

2.11%

41.4%

24.16%

Exxon Mobil

XOM

$95.01

12.42

2.65%

32.9%

10.04%

I am also considering pipelines/MLPs such as:

Company Name

Ticker

Quote

P/E

Yield

Payout
Ratio

5-yr
DGR

Enbridge

ENB

$44.35

39.93

2.84%

168%

13.82%

Inter Pipeline Ltd

IPL

$25.80

–

5.00%

–

5.45%

Oneok Partners LP

OKS

$53.52

22.91

5.42%

122%

6.42%

Pembina Pipeline

PPL

$34.40

34.32

4.88%

173%

–

Kinder Morgan Inc

KMI

$35.52

36.14

4.62%

87%

–

TransCanada Corp

TRP

$47.12

20.85

3.90%

94%

5.09%

My portfolio weighting in IPL is quite high, so I do not intend to add more to IPL. I am debating between picking up more CVX shares or investing in a new equity. What are your thoughts on the equities mentioned here?Edit: I realized that I had excluded the oil refiners from my list of considerations, so adding them to the list here.

Chatter Around the World is a weekly link update of economics, investing, dividends and personal finance articles that have caught my eye. In these weekly updates, I also capture my blog updates and news related to my holdings.

Dividend stocks have come to the forefront in the last few years after the drop in interest rates from the Fed. Investors hungry for yield have rushed to dividend stocks, and rightly so, as a source of income. This list points out the best reasons to hold dividend stocks in your portfolio.

1. Investing vs. Trading: Staying invested in great companies provides you with income as opposed to growth focused stocks where you need to sell and exit the investment to realize any profit. The buy-low-sell-high mantra needs great timing to succeed, which has been proven extremely hard to pull-off even by professional investors.

2. Passive Income: Dividends can provide investors who want to achieve financial independence with an income stream. If your nest egg is big enough, you can retire on the passive income generated through dividend stocks.

3. Stability: Corporations that pay dividends are established companies with proven record and have reliable revenues year after year. Unless the company faces a disastrous situations where their core business is at risk, dividend paying stocks are more stable and follow more predictable patterns over time.

4. Resilience: In recessionary times, dividend stocks tend to perform better. A company that can maintain to pay its dividends through rough times demonstrates the quality of its business. These companies are bottom bound with better financial fundamentals.

5. Feedback: Once dividends are paid out, they are yours. They are not empty promises or financial trickery where numbers can be cooked and you have to take a company’s word for it. This gives the investors assurance that the company is really generating the profits that it claims to have.

6. Inflation: Inflation eats into a saver’s coffers. Dividend growth stocks increase their payouts year after year beating the inflation rate enabling your funds to grow with better returns.

7. Compounding: Investing in dividend stocks allows you all of the above and when the dividends are reinvested and grown over a number of years, the compounding effect can be truly staggering. Time is one of the biggest factors when it comes to taking an advantage of the compounding effect.

What are your thoughts on dividend investing? Have I missed anything else? Leave a comment.